A lambda is something python borrowed from functional programming languages. Basically, a lambda function is sort of like a regular function, except it does not have a name. Actually, it is more correct to call it as a lambda expression rather than a function. This means, a lambda can appear in the middle of a statement unlike a def statement.

So where would you use this? Well, it comes in handy, if you're planning to write quick event handlers and don't want to declare a separate function. Another classic use is when you have a list of items and want to apply a transform to all items in the list. For example, let's say you want to square all items in a list. The non-lamdba method would be to declare a function (we call it square()) and pass it as one of the arguments to the map() function, something like this:

Actually, lambda's are function makers to be more correct. The lambda keyword creates an anonymous function.
Aside from using them with other functional constructs like map and filter, you can use them to return functions from within functions (making your own function-making functions). You can do this with locally nested scopes as well, but sometimes using a lambda is just easier.

I'd guess that lambda's would be a lil more efficent since there really just spiced up expressions which get called once then discarded, though they can only be pretty simple.. it really depends on what you want to use them for, but they have nothing on functions IMO